Two years after its launch in 2015, Ethereum has rapidly become one of the most exciting and discussed cryptocurrencies on the planet. Sure, it’s difficult to escape the headlines surrounding Bitcoin, but Ethereum offers an alternative way of working with digital currency and, most importantly, is becoming more and more valuable. You’re probably intrigued by Ethereum and want to know a little more, so let’s take a look.

What is Ethereum?

First off, it’s crucial that you understand that Ethereum is very different to Bitcoin. Although Ethereum uses the same blockchain technology as Bitcoin, Ethereum takes it in a very different direction. And the defining factor of Ethereum is that it utilizes smart contracts to pay users in tokens named Ether. You may be wondering what a smart contract is and it is, quite literally, a contract. However, far from being a written contract, a smart contract is a scripted piece of blockchain code which is executed once pre-arranged conditions have been met such as specific targets activating the code to release Ether tokens to an individual.

Smart contracts, of course, aren’t the only way to obtain Ether tokens. Much like Bitcoin, it’s possible to mine for Ethereum. Using a mining pool (such as Ethpool), miners have the opportunity to help keep the Ethereum network running by creating new blocks, solving complex issues and facilitating Ether transactions. As long as the miner also has an Ether wallet, their contributions should put them in line to receive new Ether tokens once they are minted.

What are the origins of Ethereum?

Ethereum was first proposed by Vitalik Buterin in 2013 in response to the lack of a scripting language within Bitcoin – the drawback of this situation that it wasn’t possible to develop new applications for the blockchain network. Whilst, at first, Buterin rallied to gain support for this Bitcoin scripting language, it soon became clear that the best way forward was to start an entirely new platform. The main aim of Buterin’s vision was to build software, tools and cryptocurrencies which all shared one single blockchain. With this in place, the theory was that decentralized applications along with a mining network could be created to help work on complex math, economic and cryptograph problems. The software behind this platform – by now known as Ethereum – was provided by Swiss company EthSuisse in 2014 and it eventually launched in 2015 after funding through an initial coin offering (ICO).

What is an ICO and how it is related to Ethereum?

An ICO is a funding mechanism whereby a newly minted currency such as Ethereum is sold to investors to raise funds – this can be paid in conventional currencies such as dollars and pounds or existing cryptocurrencies such as Bitcoin. Ethereum, for example, held an ICO in 2014 and within just 12 hours it had sold 3700 Bitcoin’s worth of its new token Ether to investors. At the time, 3700 Bitcoins were worth $2.3 million and underlined the power of an ICO to raise funds quickly for a startup.

The story with Ethereum and ICO’s, however, doesn’t stop here. In fact, Ethereum is now helping to fuel the development of numerous startup companies. There’s absolutely nothing to stop any startup company using blockchain technology to offer its own currency to investors. Rather than owning a percentage of the company, though, the investor owns tokens/coins of a new currency which could skyrocket in price. And one of the most popular cryptocurrencies to buy into startups is Ether, with the Bancor Foundation raising $153 million worth of Ether in just three hours.

What may be the future for it?

Clearly, with Ethereum able to generate such huge funding as seen with the Bancor Foundation, there’s an incredible level of interest in the success of this new cryptocurrency. It begs the question, though, as to where Ethereum will go next. As with all cryptocurrencies, there’s a fear that Ethereum will crash and burn in a market which is highly volatile and has the potential to severely burn the fingers of investors.

And, perhaps most pressing for investors, is the fact that Ethereum’s divergence into the Decentralized Autonomous Organization (DAO) was a massive failure. Running on the Ethereum blockchain, DAO was proposed as a venture capital fund for anyone. Unfortunately, hackers were able to exploit a vulnerability in the DAO code and managed to transfer $50 million dollars to an external bank account. Naturally, this caused great concern at the time and led to Ethereum separating DAO from the standard Ethereum platform to minimize any loss in confidence. Vitalik Buterin, however, remains confident about the future and has a number of improvements he wants to implement. First of all, Ethereum has become incredibly popular in a short amount of time, so Buterin understands that there’s a need to handle this increased activity and storage. Improving the transaction process and making it more efficient, therefore, is a key priority and one that will not only ensure Ethereum can continue to operate, but also improve the user experience. Buterin also recognizes that Ethereum needs to be more successful to engage as large an audience as possible, so the possibility of running Ethereum on a web browser is currently under consideration. In this busy, digital age, time is always a limited commodity, so Buterin and the Ethereum team are highly passionate about syncing clients with the Ethereum network more quickly. All of these improvements, of course, take considerable time and money, but the future for Ethereum remains bright.